1Q24 results are in line with our expectations
The company announced 1Q24 results: revenue of 3.644 billion yuan, +135% YoY, +4% month-on-month; net profit to mother of 176 million yuan, +104% YoY, +89% month-on-month, net profit of 194 million yuan (YoY), +143% YoY, +102% month-on-month, in line with our expectations.
The introduction of LECO led to a sharp rise in silver paste volume and a sharp correction in cash flow. In terms of profitability, 1Q24 downstream battery customers quickly introduced the LECO process. The slurry process had a clear premium at the beginning of the introduction of the new technology, and since the company had sufficient reserves in LECO slurry, it seized a higher market share during the technology iteration window, fully benefiting from the dividends of the new technology, leading to a sharp increase in profits. In terms of cost rates, the company's 1Q24 sales/management/R&D/finance expense ratios were +0.19/-0.06/+0.67/-0.34ppt to 1.14%/0.35%/3.07%/0.48%, respectively. The total cost rate for the period was +0.46ppt to 5.05% year over year, and the performance was relatively stable. In terms of cash flow, the company's 1Q24 net operating cash flow changed year-on-year from negative to positive to 386 million yuan, and the number of accounts receivable and bill turnover days remained basically flat at 100 days, reflecting that the company's account period remained relatively stable, and the number of payables and bill turnover days was optimized to 44 days. Compared with the 60 days of 1Q23 and the average of 49 days for the full year of 2023, there was a significant improvement in the procurement and payment period. According to the company's quarterly report, it was mainly due to the extended procurement and payment period of some silver powder through supply chain companies.
Development trends
Promoting the upstream layout, the bargaining power of the supply chain is expected to continue to improve. The company continues to invest in upstream silver nitrate production capacity. We believe that the upstream layout will help the company ensure supply chain safety, reduce raw material costs, and enhance bargaining power with suppliers, thereby improving cash flow performance. We expect the silver nitrate production capacity in Shandong to be completed and put into operation within this year, and subsequent companies are also planning metal powder production capacity, which is expected to promote the continuous optimization of the company's profitability and profit quality.
Decide to increase production and strengthen the leading position. In March 2024, the company announced that it plans to raise no more than 265 million yuan to invest in the construction of an expansion project with an annual output of 2,000 tons of conductive silver paste and a R&D and production project with an annual output of 50 tons of low-temperature conductive silver paste for semiconductor packaging. The planned construction period is 24/36 months, respectively. On the one hand, TopCon has clearly become the current mainstream technology route. According to InfoLink, the current battery-side N-type accounts for more than 60% and continues to rise. As a leading supplier in the industry, the company continues to expand production and consolidate its leading position to meet the growing downstream demand. On the other hand, the company forward-looking layout of semiconductor packaging pastes and continues to increase R&D investment to accelerate the transformation of technological achievements. We believe that its barriers and profitability are significantly higher than photovoltaic silver paste, which is expected to build the company's second growth curve in the future.
Profit forecasting and valuation
The 2024/2025E net profit remained unchanged at 652/ 763 million yuan. The current stock price corresponds to 2024/2025 10.6/9.0x P/E, maintaining the outperforming industry rating and target price of 65 yuan (after exclusion), corresponding to 14.0/12.0x P/E 2024/2025, with 33% upside compared to the present.
risks
Increased competition in the industry puts pressure on profitability, accounts receivable risk, and cash flow risk.